The California Zero Emission Vehicle Mandate: Legal and Market Expectations Intertwined

Transcription

1 The California Zero Emission Vehicle Mandate: Legal and Market Expectations Intertwined National Association of Motor Vehicle Boards and Commissions Jonathan Morrison President Auto Advisory Services, Inc.

2 Agenda History of the ZEV Mandate PEV Market Snapshot PEV Market Challenges PEV Retail Challenges Coming Challenges for PEV Market

3 California Emissions Regulations California v. Federal Standards Low Emission Vehicle (LEV) Regulations Greenhouse Gas (GHG) Regulations Zero Emission Vehicle (ZEV) Regulations Section 177 of the Clean Air Act 14 additional states have adopted California s LEV standards; 9 of which have adopted California s ZEV Mandate

4 ZEV Vocabulary Partial Zero Emission Vehicle (PZEV): Standard (generally gasoline) vehicles that meet strict exhaust requirements, have zero evaporative (gas tank and fuel line) emissions, and have 15 year/150k mile emissions warranties. Advanced Technology Partial Zero Emission Vehicle (AT-PZEV): Hybrid Electric Vehicles that meet certain voltage and peak power requirements; or Compressed Natural Gas Vehicles.

5 ZEV Mandate History Transitional Zero Emission Vehicle (TZEV): Plug-In Hybrid Vehicles that have at least 10 miles of all-electric range; Zero Emission Vehicle (ZEV): Battery Electric Vehicles (BEV); or Hydrogen Fuel Cell Vehicles (FCV); ZEV Credits: An amount of credit toward compliance with the ZEV mandate.

6 ZEV Mandate History Round 1 The ZEV Mandate was first launched in The regulation required that 2% of all light duty vehicles sold for delivery in California must be ZEVs by The mandate increased to 5% in 2001, and 10% in The travel provision allows a ZEV sold in any Section 177 state to count toward the requirements in any other state.

7 ZEV Mandate History After a 1996 Mid-Term Review, CARB eliminated the 1998 and 2001 mandates. In 1998, CARB gave PZEVs partial ZEV Credit. In 2001, CARB modified the ZEV regulation to require 2% ZEVs (Gold), 2% AT-PZEVS (Silver), and 6% PZEVs (Bronze) by Increased to 10% ZEVs in 2018.

8 ZEV Mandate History Lawyered Up Automakers sued CA to block implementation of the revised ZEV mandate, arguing that the requirements for ZEV credits for hybrids resulted in an indirect regulation of fuel economy. An injunction was granted for model years 2003 and The federal Department of Justice filed an amicus brief in support of the automakers; environmental groups filed briefs in support of CARB.

9 ZEV Mandate History Round 2 In 2003, CARB introduced a revised ZEV Mandate, similar to the 2001 version, but with no reference to fuel economy. The 2003 ZEV Mandate also created an alternative compliance pathway, which allowed greater flexibility and ZEV Credit to automakers creating fuel cell vehicles, and allowing remaining ZEV requirements to be met with ATPZEVs.

10 ZEV Mandate History Round 3 After hosting a technological symposium in 2006 and performing follow-up studies, CARB proposed a reworked ZEV Mandate in Most changes related to model years 2012 and later, and the revised program introduced additional ZEV Credits for Enhanced ATPZEVs (primarily plug-in hybrids) that would be soon launched. For the most part, this is the last MY of round 3.

11 Current ZEV Mandate ZEV Review and Advanced Clean Car In 2009, CARB hosted another technological symposium leading to the restructuring of the LEV, GHG, and ZEV programs into a comprehensive vehicle emissions program. Key to the revised ZEV Mandate was Governor Schwarzenegger s Executive Order that required an 80% reduction in GHG emissions by 2050.

12 Current ZEV Mandate Source: ISOR for 2012 ZEV Regulation

13 Current ZEV Mandate Source: CARB Staff Modeling In Support of ZEV Regulation

14 Current ZEV Mandate Source: CARB Staff Modeling In Support of ZEV Regulation

15 Current ZEV Mandate Advanced Clean Car The Advanced Clean Car Regulations divide future compliance into two key periods: , and The earlier period contains simpler mandates, while the later period introduces extremely strict requirements. Crucially, beginning with model year 2018, automakers do not receive ZEV Credits when selling PZEVs or ATPZEVs, and the travel provision was eliminated for BEVs effectively tripling the ZEV requirement.

16 Current ZEV Mandate Source: ISOR for 2012 ZEV Regulation

17 Current ZEV Mandate Source: Center for Climate and Energy Solutions

18 Current ZEV Mandate ZEV Calculation: ZEV Tier Range (miles) ZEV Fast Refueling Capability Credit NEV No min N/A 0.3 Type 0 (BEV) < 50 N/A 1.0 Type I (BEV) 50, <75 N/A 2.0 Type I.5X (BEVx) 75, <100 N/A 2.5 Type IIX (BEVx) 100 N/A 3.0 Type I.5 (BEV) 75, <100 N/A 2.5 Type II (BEV) 100 N/A 3.0 Type III (H2 FCV or Fast Charge Ext Range EV) Type IV (H2 FCV or Battery Swap Ext Range EV) Type V (H2 FCV or Battery Swap Ext Range EV) Must be capable of replacing 95 miles (UDDS ZEV range) in 10 minutes per section (d)(5)(B) Must be capable of replacing 190 miles (UDDS ZEV range) in 15 minutes per section (d)(5)(B) Must be capable of replacing 285 miles (UDDS ZEV range) in 15 minutes per section (d)(5)(B) : : 9.0 Credit ZEV Credit = (0.01 * Range) (min = 50 miles, max = 350 miles) Source: 13 California Code of Regulations Sections (d)(5)(C) & (d)(5)(A)

19 Current ZEV Mandate Source: 13 California Code of Regulations Section (b)(1)(A) Source: 13 California Code of Regulations Section (b)(1)(E)

20 Current ZEV Mandate Source: ISOR for 2012 ZEV Regulation

21 Current ZEV Mandate Source: CARB ZEV Calculator

22 Current ZEV Mandate Source: CARB ZEV Calculator

23 Current ZEV Mandate Source: ISOR for 2012 ZEV Regulation

24 Put Your Money Where Your Mouth Is Easier to Buy: $7,500 Fed Tax Credit; CVRP: $2,500 for BEVs; $1,500 for PHEVs Local Districts: Up to $3,000 for BEVs (limited) Easier to Drive: HOV Lane : Unlimited BEV/FCV; 55k PHEVs Infrastructure: BEVs: $120-$150 Million in Charging Stations FCVs: Up to $140 Million in Hydrogen Stations Easier to Park: Cities/Counties: Free Parking + Free Charging Utilities: Free Charging Stations (limited)

25 PEV Market Snapshot CA Year Total Sales %PHEV %BEV %PHEV + BEV ,290, % 0.4% 0.5% ,529, % 0.4% 1.4% ,711, % 1.3% 2.5% 2014 (Q1-2) 912, % 1.4% 3.1% Source: Polk; California Auto Outlook US Year Total Sales %PHEV %BEV %PHEV + BEV ,778, % 0.08% 0.14% ,492, % 0.10% 0.36% ,581, % 0.31% 0.63% 2014 (Q1-3) 6,741, % 0.29% 0.69% Source: Automotive News

26 PEV Market Snapshot Source: Polk

27 PEV Market Snapshot 2011 Monthly Auto & PEV Sales 1,800,000 25,000 1,600,000 1,400,000 20,000 1,200,000 1,000,000 15, , ,000 10, ,000 5, , ,066 1,623 2,269 1,056 1,664 1,754 1,957 1,811 2,563 0 US Monthly Auto Sales Source: Auto News Monthly PEV Sales Source: InsideEVs

28 PEV Market Snapshot 2012 Monthly Auto & PEV Sales 1,800,000 25,000 1,600,000 1,400,000 20,000 1,200,000 1,000,000 15, , , , , ,317 1,566 3,815 3,565 3,367 3,124 3,029 4,686 5,745 7,084 6,755 10,000 8,554 5,000 0 US Monthly Auto Sales Source: Auto News Monthly PEV Sales Source: InsideEVs

29 PEV Market Snapshot 2013 Monthly Auto & PEV Sales 1,800,000 25,000 1,600,000 1,400,000 20,000 1,200,000 1,000,000 15, , , , ,000 4,577 5,404 7,982 7,138 7,454 8,292 7,892 11,273 8,427 10,055 9,003 10,010 10,000 5, US Monthly Auto Sales Source: Auto News Monthly PEV Sales Source: InsideEVs

30 PEV Market Snapshot 2014 Monthly Auto & PEV Sales 1,800,000 25,000 1,600,000 1,400,000 20,000 1,200,000 1,000,000 15, , , ,000 5,550 7,190 9,172 8,605 12,053 11,893 10,533 11,794 10,000 5, , US Monthly Auto Sales Source: Auto News Monthly PEV Sales Source: InsideEVs

31 PEV Market Snapshot YTD Monthly Auto & PEV Sales 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 J1 M1 M1 J1 S1 N1 J2 M2 M2 J2 S2 N2 J3 M3 M3 J3 S3 N3 J4 M4 M4 J4 S4 25,000 20,000 15,000 10,000 5,000 0 US Monthly Auto Sales Source: Auto News Monthly PEV Sales Source: InsideEVs

32 PEV Market Snapshot

33 PEV Market Challenges Paradigm Shift Range Anxiety: Limited range, small number of charging stations, and long charging times creates consumer concern with being Clooneyed. Unsuitability for Many Consumers: Apartmentdwellers, street-parkers, large families, long-commuters, campers, boat haulers, etc. Aspirational Purchasing: With the exception of dream cars, consumers don t buy cars to meet some of their needs, but all of them.

34 PEV Market Challenges Expense: PEVs compete directly with the cheapest and most fuel efficient vehicles on the road: 4-cylinder compact and subcompact vehicles. Bang for the Buck? Depends on the Customer Model EPA MPG(e) MSRP Ford Fusion S 21/34 $21,970 Ford Fusion S Hybrid 47/47 $26,270 Ford Fusion Energy SE 108/92 $34,700 Nissan Versa 31/40 $11,990 Nissan Leaf 130 $29,830

35 PEV Market Challenges Source:

36 PEV Transaction Complexity Traditional Vehicle Sale Model Factory Dealer Consumer

37 PEV Transaction Complexity PEV Vehicle Sale Model Factory CCSE (Rebate) Dealer DMV (HOV) IRS Permit Office EVSE Installer Consumer Charging Network EVSE Vendor Utility

38 PEV Dealer Challenges Given that the vehicles are not suitable for everybody, dealers can t hard sell PEVs. Steering a person to a PEV without understanding whether the vehicle will fit their needs will result in an unhappy customer and potential litigation.

39 PEV Dealer Challenges Customer Profile: Most PEVs are purchased through franchised Nissan, Ford, Chevrolet, or Toyota dealers. The average consumer at these dealerships wants to know about vehicle features, and negotiates primarily on trade-in valuation, price and financing.

40 PEV Dealer Challenges PEV consumers do not reflect the average purchaser at such dealerships. PHEV Purchasers (76% > $100k) BEV Purchasers (80% > $100k) Source: California Center for Sustainable Energy CVRP Survey

41 PEV Dealer Challenges But we re starting to see these vehicles in less-wealthy households. PHEV Purchasers BEV Purchasers Source: California Center for Sustainable Energy CVRP Survey

42 PEV Dealer Challenges PEV consumers tend to be well-educated, inquisitive, technology enthusiasts. PEV consumers tend to be accustomed to luxury vehicle dealership experiences.

43 PEV Dealer Challenges In addition to information on vehicle features, financing, trade-in disposition, warranties, PEV consumers seek info on: Charging Stations: products, installation requirements and costs, installers, building permit requirements, local station locations, and retail charging network subscriptions; Incentives: availability of tax credits, rebates, and other incentives; Local Utility Rates; and Non-Financial Perks: HOV Access, free charging and parking.

44 PEV Dealer Challenges In a nascent market, dealers will succeed or fail in attempting to gauge local consumer interest in PEVs. Overestimating consumer demand can result in major losses. Underestimating consumer demand will result in lost sales, and potentially long-term negative consequences.

45 Policies Helpful for PEV Sales Control and Command Regulations Cannot Succeed Without Customer Demand: Incentives must be continued and predictable: CVRP and HOV Lane Access Concerns Infrastructure must be continuously developed Centralized informational websites for dealers and consumers. Consumer Expectations: Educate consumers on what they need to know before they visit the dealership, what to expect, and who to talk to when they get to the dealership.

46 BUT ARE WE TINKERING TOO MUCH WITH THE MARKET?

47 Fuel Economy Trends by Segment Source: Automotive Leasing Guides Increases in fuel efficiency have eroded the value proposition of EVs and hybrids

48 Alt Fuel Market Share Trends Source: Automotive Leasing Guides In 2014, hybrid vehicles have experienced a dip in share

49 Transaction Price Trends by Powertrain Source: Automotive Leasing Guides Hybrids (incl. Plug-In) and EVs have experienced drops in transaction prices relative to gas/diesel models

50 Residual Value Forecast History: Nissan Leaf $28,800 MSRP $35,200 MSRP $28,980 MSRP Source: Automotive Leasing Guides Leaf incurred a ~$3,000 negative adjustment in Sep/Oct 13

51 Residual Value Forecast History: Nissan Leaf $28,800 MSRP $35,200 MSRP $28,980 MSRP Source: Automotive Leasing Guides Initial 24m forecast was spot on, but values have collapsed in recent months

52 CY Residual Value Forecast : Nissan Leaf v. Nissan Sentra Source: Cars.com; Automotive Leasing Guides

53 Residual Value Storm Clouds Source: Edmunds.com

54 Residual Value Storm Clouds Source: Nissan.com

55 Residual Value Storm Clouds Source: Nissan.com

56 Residual Value Storm Clouds

57 Residual Value Storm Clouds

58 Residual Value Forecast History: Chevrolet Volt $39,145 MSRP $39,145 MSRP $34,185 MSRP Source: Automotive Leasing Guides Volt experienced two negative adjustments in Sep/Oct 13 and again in Sep/Oct 14

59 Residual Value Forecast History: Chevrolet Volt $39,145 MSRP $39,145 MSRP $34,185 MSRP Source: Automotive Leasing Guides Volt returns have underperformed ALG forecasts, leading to two significant negative adjustments in 2013 and 2014

60 CY Residual Value Forecast : Chevrolet Volt v. Chevrolet Cruze Source: Cars.com; Automotive Leasing Guides

61 Residual Value Ratings Source: Automotive Leasing Guides

62 Thank You Jonathan Morrison Auto Advisory Services, Inc. (714)